Offshore outsourcing: Little effect on U.S. jobs?

The trend toward U.S. IT and manufacturing companies outsourcing jobs to other countries has so far had little effect on the overall U.S. job market, supporters of offshore outsourcing and some economists argued Thursday, but others predicted the national debate over the issue will get hotter as more jobs move.

With most estimates saying 500,000 or fewer U.S. jobs have moved offshore to countries like India, offshore outsourcing has had little impact on the U.S. unemployment rate, which stood at 5.9 percent in November, said defenders of the practice during a forum, sponsored by the Information Policy Institute, in Washington, D.C. Instead, a more complex series of problems is causing the current "jobless" economic recovery, with the U.S. economy failing to create new jobs over the past two years, said Erica Groshen, assistant vice president of the Federal Reserve Bank of New York.

The U.S. has a workforce of about 130 million people, and a few hundred thousand jobs being shifted overseas should have little impact on the number of jobs in the U.S. in the long-term, Groshen said, although she acknowledged that individuals who lose jobs will be negatively affected. As the U.S. continues to move the production of "mature" products overseas -- and writing computer code will soon be a mature industry -- those displaced workers will help the U.S. develop new innovations, which is the country's strength, she said.

"The workers released from (outsourced jobs) will go on to develop the next big thing," Groshen said.

While Groshen and representatives of the U.S. IT industry defended offshore outsourcing as potentially good for the U.S., others raised warning flags. The argument that offshore outsourcing "frees up labor that can be redeployed" may not make sense to a U.S. worker who's just been laid off, said Ron Blackwell, chief economist for the AFL-CIO. "That's not exactly how I'd phrase it," he said of outsourcing freeing up labor.

When the offshore outsourcing of manufacturing started, proponents said U.S. residents shouldn't worry about those low-wage jobs, Blackwell said. College graduates were told not to worry about their jobs, but now U.S. companies are beginning to send programming, accounting and other jobs requiring college degrees overseas, he said. "With this second wave, (college graduates) are precisely the group this outsourcing of IT is hitting hardest," he said.

About 2 million residents of India graduate with college degrees every year, and face an unemployment rate of about 20 percent, said Martin Kenney, senior project director at the Berkeley Roundtable on International Economy and a professor at the University of California, Davis. Those numbers give India a great incentive to attract U.S. jobs, he said.

"You look 10 years out, and the numbers get very huge," Kenney said of the potential for outsourcing.

But political tensions in parts of the world may keep the offshore outsourcing numbers from growing as fast as some predict. "If Pakistan and India have a nuclear war, your call center could be in trouble," he said. "Things could change on a dime."

Supporters of offshore outsourcing argued the practice can save companies money, encourage other countries to buy U.S. products and allow U.S. workers to focus on a company's core products. Some companies have reported savings of 40 percent to 80 percent by moving some businesses processes out of the U.S., Kenney said.

The U.S. IT industry will continue to thrive even with offshore outsourcing, because its IT industry continues to be the most innovative, said Jeff Lande, vice president of the IT Services Division at the Information Technology Association of America. Offshore outsourcing does not mean a "zero sum game," with every job created overseas equaling a lost U.S. job, he said.

"We're not going to win this battle over wages," Lande said. "This is going to be a battle over innovation and quality. The U.S. IT workers are the best in the world, and they're going to continue to be the best."

A study released by Forrester Research Inc. in November predicted 3.3 million U.S. jobs in the service industries would move overseas by 2015, but Lande noted that less than 1 million of those were predicted to be IT jobs. The IT industry should grow in 2004, meaning more U.S. jobs, he said. And with the baby boomer generation closing in on retirement, the U.S. should have a shortage, not a surplus, of skilled workers in the next 15 years, he said.

With pressure from stockholders to keep costs low, efforts to stall offshore outsourcing could harm U.S. businesses, said Rolf Lundberg, senior vice president of congressional affairs for the United States Chamber of Commerce. Efforts in eight states and among some members of the U.S. Congress to prohibit government contracts from being fulfilled by foreign workers will, in the long run, hurt the U.S. by driving up the cost of those government contracts and discouraging other countries from buying U.S. products, he said.

Instead of "protectionist" policies, the U.S. government should work on ways to cut health-care costs and limit the number of lawsuits against U.S. companies, Lundberg said.

Lundberg defended offshore outsourcing by saying the money savings will pump up the bottom lines of U.S. companies. "Savings are passed on to consumers," he said. "Dividends are passed on to shareholders."

But Robert Atkinson, senior vice president of the Progressive Policy Institute, disagreed with predictions of worker shortages, saying fewer U.S. workers will mean less demand for products produced in the U.S. "You know what happens when jobs level off -- demand levels off," he said.

Instead of worrying about numbers of workers, or trying to pass laws against offshore outsourcing, the U.S. government should develop a national policy to grow the IT sector by using it to improve the country's transportation, criminal justice or health-care systems, Atkinson said. The positive result of a national debate over offshore outsourcing, which he predicted would be a 2004 election issue, could be a change in the national attitude about priorities such as using IT to improve those services, he said.

"We need to grow the IT economy," he said. "We could really have some big national goals."